Bad Bets on Iowa

Web Exclusive; NextNews: Daily Exploration of Science & Technology; Interview
James M. Pethokoukis  

20 January 2004
U.S. News & World Report Web Exclusive

Throughout the run-up to the Iowa caucuses, I've been keeping a close eye on 
the trading action at TradeSports, an Ireland-based Internet betting site. 
(A note of caution: Wagering at such sites, as best I can determine, is of 
uncertain legality for U.S. citizens.) These betting markets have been shown 
in various studies to be more accurate than polling or expert predictions in 
forecasting elections, commodity futures, and economic growth. Some 
academics even have suggested the markets should play a role in determining 
public policy, such as with the ill-fated terror futures market from last 
summer. At any rate, the TradeSports site had been showing a steady drop in 
support for Howard Dean, from a high of around 75 percent in late 2003 
(meaning that bettors thought he had a 75 percent chance of winning) to 
around 40 percent or so in recent days, putting him in a dead heat with John 
Kerry. But just before the Iowans started caucusing, Kerry lost almost 
quarter of his support.

I saw a similar phenomenon during the California governor's race when 
support on Election Day for Arnold Schwarzenegger suddenly soared in the 
afternoon even before preliminary exit polls were released. And, as we now 
know, Schwarzenegger cruised to an easy victory.

This time, however, the bettors got it wrong. In fact, support for Dean in 
the Hawkeye State was imploding. Someone somewhere apparently thought they 
knew something. Apparently they really didn't . . .I will be checking in 
with the betting markets throughout the election season to see how they 
fare. Right now, it looks like a dead heat between Kerry and Dean in New 
Hampshire, which has its primary next week.